Jaypee to buy Duncans’ Kanpur fertilizer plant

Kolkata: Tea producer Duncans Industries Ltd is set to sell its closed fertilizer plant near Kanpur to real estate and infrastructure developer Jaypee Group, which is looking to expand in agriculture, according to two persons familiar with the deal.

If the deal goes through, the plant, which has a urea production capacity of 722,000 tonnes per annum, would be hived off into a separate company, and a 74% stake in it would be sold to the Jaypee Group for a token consideration of Re1.

Duncans would have a put option on its 26% stake in the venture.

The transaction could result in the Jaypee Group investing at least Rs700 crore to enter the fertilizer business. It would have to settle the plant’s outstanding liabilities by paying at least Rs580 crore, and infuse around Rs250 crore more to restart the factory.

In an emailed statement, a Jaypee Group spokesperson denied such a plan. “The news…is a figment of someone’s imagination and as a corporate policy, we would not like to comment on market rumours,” she said. However, she confirmed that the group was “exploring various options in agri-business, including fertilizers”.

Duncans chairman G.P. Goenka refused to comment on the possible deal, saying, “There is no material development at this moment that we could share with the media.”

Duncans shares closed almost unchanged at Rs15.41 apiece on the Bombay Stock Exchange on Friday, while the exchange’s benchmark index, the Sensex, rose 95.36 points, or 0.56%, to 17,117.69.

It is widely known that Duncans has been looking to sell its fertilizer unit for a while, having almost clinched a deal with a Hong Kong-based private equity firm two years ago.

Duncans had acquired the naphtha-based fertilizer plant from the erstwhile ICI India Ltd—a British paint maker—in 1995, and mothballed it in 2002. ICI has since been acquired by Dutch chemicals firm Akzo Nobel NV.

The fertilizer factory sits on a 250-acre plot on the outskirts of Kanpur.

“Run at full capacity, the unit could generate Rs1,700-1,800 crore in annual revenue, and deliver a profit before tax of around Rs175 crore,” said a Duncans official, who did not want to be named. “However, we on our own couldn’t restart the plant because it was impossible for us to stump up Rs700 crore at one go.”

The other problem that kept Duncans from restarting the plant was the now-withdrawn regulation that closed fertilizer units had to switch to natural gas to restart production.

“That would have meant more investment,” the Duncans official said, adding that this regulation was largely responsible for scuppering the deal with the Hong Kong-based fund.

The firm owes banks around Rs700 crore, but they have agreed to settle their dues for Rs280 crore, the official added.

Most importantly, the deal would result in Duncans repaying some 64,000 people to whom it owes Rs75 crore, money it had raised through a fixed deposit scheme. “At present, we are able to repay only Rs40-50 lakh a month. We hope to repay all fixed deposit holders in full at one go on conclusion of this deal,” the official said.

The deal will clean up the balance sheet of the G.P. Goenka group, which has interests in engineering, paper and cement, besides tea and fertilizer. All businesses of the group are currently profitable except fertilizers.

Though the two firms have reached an agreement on the broad contours of the deal, one issue remains unresolved: Duncans is negotiating with the workers of the fertilizer plant for a new wage agreement, under which people are to work six days a week compared with five now, according to the official cited earlier.

When the company acquired the plant, it had about 1,400 workers. It wanted to reduce the workforce by half, but couldn’t.

“Currently, there are only 600 workers. Many people have left on their own, and there is no need for further reduction,” the official said.

Negotiations with workers are currently on, and the Duncans management hopes to conclude a deal this week.

“If things go according to plan, we should be able to sign the agreement with workers on Sunday, and close the deal with Jaypee Group next week,” the official said.

Jaypee Group officials are expected to sign the agreement with workers as witnesses.

The deal, however, needs the approval of the Board for Industrial and Financial Reconstruction, which provides protection from creditors to companies in poor financial condition.